We interviewed Jay Silverstein, leader of the Moss Adams Wealth Services practice, about how business owners can avoid or minimize estate taxes.
Silverstein, previously a tax attorney, has been with Moss Adams since 2001 and works out of both Santa Rosa and San Francisco offices. He is also a member of the company’s wineries and vineyards practice.
The 2017 exemption for estate taxes is $5.43 million and twice that, or $10.86 million, for married couples. When an estate exceeds those amounts, the remainder is subject to estate taxes of 40 percent. The high current exemptions mean that only affluent business owners with substantial assets are subject to estate taxes. In 2013, fewer than a fifth of 1 percent of estates had to pay any estate taxes, amounting to about 5,000 estate-tax returns that year.
With the exemption at $5.43 million, estate taxes are not bad compared to what they were a few years ago?
That’s absolutely correct. When I started 30 years ago, it was $600,000 (exemption).
These days, the tax affects a much smaller number of businesses, but it still could affect folks in the North Bay, especially wineries and vineyards with significant assets in land, wineries and production equipment. It is possible to hit $10.9 million easily?
That’s correct. It’s 40 percent on everything over and above that.
Do you see that in clients regularly?
It’s almost $11 million for a couple. The percentage of estates nationally that exceed that threshold is low. But around here, I do a lot of transactional work in the wine space. The value of land and of operating wineries and the brand can exceed that pretty quickly. We have a fair number of clients where we still plan to minimize the estate tax.
If a vineyard has 100 acres planted, each acre is worth $100,000 in this area?
Yes, at least.
Plus the winery and equipment easily takes the assets to the $20 million range?
Absolutely. We see a lot in that range and well in excess of that. The monkey wrench in all the planning is uncertainty around estate taxes and tax reform in general, whether there will be an estate tax going forward. Until that happens, we still plan with clients according to the law that is in place.
Your assumption is that the exemption and tax rate will stay at current levels?
Yes. That’s where things are. Given dysfunction in our federal government, nothing may come of tax reform. If the estate tax went away completely, it might come back in the future. Or if the estate tax goes away, there might be some kind of capital-gains tax on death, as in the Canadian system.
The planning is similar for clients with assets significantly in excess of $11 million. There is no downside to moving assets out of your estate unless you need those assets or the cash flow those assets are generating for your own personal financial needs. We plan to minimize a tax liability while looking at what the husband and wife need in future cash flow.
It’s important to make sure people have sufficient wealth and capital produced from that wealth to meet their needs. We determine the most efficient way to transition excess wealth.
To the heirs?
Yes, to heirs in a way that will minimize estate tax but leave the older generation with the comfort and security that they are going to have enough for their life.